OTTAWA - Unemployed Canadians continued to struggle with a tough job market last month as the slow-moving economy laid an egg in February, unexpectedly shedding 2,800 jobs.

The national unemployment rate dropped to 7.4 per cent, but that was because close to a net 38,000 frustrated job seekers simply gave up the search.

The news was particularly grim for young Canadians. Employment among the 15-24 age cohort fell another 26,800 in February and now is down almost 300,000 jobs since the beginning of the recession in 2008.

Prime Minister Stephen Harper called the Statistics Canada report "disappointing," but stressed some positives, including increased full-time employment, continuing a trend, and a brightening outlook in the United States.

Still, Harper conceded his government has work to do and promised action in the upcoming March 29 budget.

"Obviously we will not keep our eye off the ball and there will be a lot of measures in the budget to create jobs and get us on a long-term sustainable track," he told an event in Toronto.

"Basically, the easy job gains are gone," he said. "The things that really drove jobs early in the cycle are simply not going to be there, whether it's government hiring or retail related jobs driven by consumer spending."

Despite Harper's reference to "a lot of measures" coming in the budget, the statements from ministers suggest there will be little to generate short-term job growth. In fact, the expectation is that Finance Minister Jim Flaherty will bring in an austerity budget that reduces spending and cuts the public service.

The ball is being left to the private sector to carry, but TD Bank economist Diana Petramala said corporations appear to be spooked over European debt problems.

"The weakness ... largely reflects a small crisis of confidence, with businesses remaining reluctant to add to payrolls as rising financial risks in Europe threatened future demand prospects," she said.

That is in contrast to the United States which, after years of playing second fiddle to Canada in terms of job generation, now appears to be catching up.

The U.S. reported, also on Friday, an additional 227,000 jobs for February to complete three of the best months of hiring in four years. Monthly gains over that period averaged 245,000.

That is slightly above the consensus estimate from economists, while in Canada the result badly missed expectations. Economists had called for an increase of 15,000 jobs.

While the losses were tiny given the close to 19-million-member Canadian labour force, the big story was the exodus of workers from the job market, particularly in Ontario, which saw 40,500 fewer people actively seeking employment.

Labour market contraction at a time of rising population is normally associated with discouraged workers giving up on finding employment.

After strong job growth following the 2008-09 recession, Canada has seen this critical aspect of the economy slow and then essentially stall.

Statistics Canada noted that employment had risen by 121,000 over the past 12 months, almost all in the first six months.

Economists estimate Canada needs to add between 15,000 and 20,000 jobs each month just to keep up with demand from increases in population.

Labour economist Erin Weir of the United Steelworkers noted that along with fewer jobs, the two per cent gain in average hourly wages means even those working are not keeping up with inflation.

He called on governments to shift focus from austerity to job creation.

"The priority should be to create jobs through public investment," he said. "The risk is that budget cutbacks will push Canada back into recession by eliminating public-sector jobs and reducing expenditures that help support private-sector jobs."

The jobs report came the same day that Statistics Canada reported that labour productivity at Canadian businesses grew faster than their U.S. counterparts for the first time in nearly a decade last year.

After posting a better-than-expected 0.7 per cent gain in the fourth quarter of 2011, Canadian business productivity for the full year was up 0.8 per cent, slowing from the 1.5 per cent gain in 2010.

By comparison, the U.S. saw a slight increase of 0.2 per cent in the fourth quarter to finish the year at 0.2 per cent, down from four per cent in 2010.

Porter noted that the productivity report suggested that labour performance may finally be turning the corner after a lacklustre stretch in the middle of the recovery.

"It truly appears like the Canadian and U.S. recoveries are trading places —Canada exiting strong jobs/weak productivity, and the U.S. leaving weak jobs/strong productivity," Porter said.

The biggest Canadian job losses in February came in the retail and wholesale trade industries, which shed about 37,000 workers, followed by 22,000 job declines in both transportation and warehousing, and health-care and social assistance.

Meanwhile, employment in finance, insurance, real estate and leasing rose by 41,000, reversing half the declines in those industries over the past five months. There were also smaller gains in educational services, business, building and other support services, natural resources, construction and manufacturing.

Regionally, six out of 10 provinces experienced job losses in February, although none of the declines was large. The only significant movement in the provincial numbers was Ontario's 40,500 decline in the labour force, which helped drop the provincial unemployment rate half a point to 7.6 per cent.